The office market in Orange County, California, has demonstrated notable improvement in the third quarter of 2026. According to ConnectCRE, total vacancy in the region has decreased to 15.4%, down from 17.1% a year ago. This decline in vacancy rates is accompanied by an increase in average asking rents, which have risen to $3.02 per square foot per month, up from $2.90 at the end of 2025. These trends indicate a positive shift in demand for office space in Orange County, suggesting a recovery in the local market after a challenging period.
In addition to the improvements in Orange County, significant lease extensions in major markets are also contributing to a sense of stability in the office sector. For instance, Rudin has secured a substantial lease extension of 170,112 square feet with the law firm Seward & Kissel at One Battery Park Plaza in Lower Manhattan. This extension, which spans 11 years, reflects ongoing commitments from established tenants in prime office locations, as reported by ConnectCRE 2. Such lease extensions may signal resilience in the office market despite broader economic fluctuations.
The demand for office space is further bolstered by the growth of the artificial intelligence (AI) sector. Commercial Observer reports that AI companies are increasingly seeking premium office spaces to accommodate their expansion. A notable example is Synthesia, which recently leased 50,000 square feet at GFP Real Estate’s 675 Avenue of the Americas. This trend underscores the active pursuit of larger office spaces by technology firms, particularly in key urban markets 1.
Moreover, there is a growing trend of office-to-residential conversions as developers adapt to changing market conditions. Jemal Real Estate Strategies and DivcoWest are currently pursuing a project in Washington, D.C.'s West End, where they plan to convert office spaces into residential units. This strategic shift reflects the evolving demands of the real estate market, as highlighted by REBusinessOnline 3.
As the office market continues to navigate through various challenges, these developments in Orange County and other major markets indicate a cautious optimism among stakeholders. The combination of decreasing vacancy rates, rising rents, significant lease extensions, and the influence of emerging sectors like AI suggests that the office market may be on a path toward recovery and adaptation in the coming months.
Sources
- Commercial Observer — AI Platform Synthesia Moves HQ to 50K SF at GFP’s 675 Avenue of the Americas
- ConnectCRE — Seward & Kissel Extends 170K-SF Lease with Rudin for 11 Years
- REBusinessOnline — Jemal Real Estate, DivcoWest Plan Office-to-Residential Conversion in D.C.’s West End
- Commercial Observer — Taco Bell’s Office Lease Largest in Orange County, Calif., in Five Years